FT: Europe’s savers grapple with rate divide

There is a lot of focus at the moment on the difference in mortgage rates between member states. The same is happening with deposits.

FT article.

Variances in highest rates.

SavingsGlobal research shows that today the highest rate that an Italian bank will pay interest is 2.8 per cent on a one-year deposit of €10,000. In Germany, the highest interest rate available is 1.5 per cent, little more than half that amount.

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In Ireland, it is somewhere in between at 2.0% for a 1 year deposit if you adhere to Nationwide UK's conditions.

Variances in average rates.

ECB data indicate the average rate paid on deposits with maturities of less than a year varies spectacularly across the eurozone, from 0.3 per cent in Luxembourg and Latvia to 2.6 per cent in Cyprus.

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Part of the cause of the divergence in deposit rates and lending rates.

Member states’ banking rules, which often demand that global banks keep a subsidiary’s deposits in the host country, exacerbate the divergences.
This is not just a problem for savers. That deposits cannot flow easily across the region deprives banks in more troubled parts of the eurozone of a valuable source of funding and curtails lending.

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Perhaps, the ECB, when they assume supervision of most European banks, need to remove the rule requiring deposits to be kept in the host country in help facilitate a greater pan European competition.

Haven't read the article but the parts you quote would suggest that depositors are pricing risk fairly rationally Germany, Luxembourg (low risk of bank default/low return) Ireland (intermediate risk/intermediate rate) and Italy/Cyprus/Latvia (high risk/high return).

Obviously this will feed through to the cost of funds for banks in different countries and thus to the cost of consumer credit in those countries.

How would repealing the rule about keeping deposits in host countries work re. deposit insurance schemes (is is proposed that deposit insurance be rolled into the EU Banking Union)?

CiaranT said:

Perhaps, the ECB, when they assume supervision of most European banks, need to remove the rule requiring deposits to be kept in the host country in help facilitate a greater pan European competition.

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Absolutely not! Take a moment to think about risk management...

For the benefit of the European saver more needs to be done to help facilitate pan European retail deposit market competition.

tvman said:

How would repealing the rule about keeping deposits in host countries work re. deposit insurance schemes (is is proposed that deposit insurance be rolled into the EU Banking Union)?

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Deposit insurance has been standardised in cap terms in the EU but there are no firm plans to have a centralised deposit insurance pool like the USA's Federal Deposit Insurance Corporation. There should be. This would be another step towards a single market.

CiaranT said:

For the benefit of the European saver more needs to be done to help facilitate pan European retail deposit market competition.



Deposit insurance has been standardised in cap terms in the EU but there are no firm plans to have a centralised deposit insurance pool like the USA's Federal Deposit Insurance Corporation. There should be. This would be another step towards a single market.

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No it is not about deposit insurance! It is all about the kind of shell and pea games the banks could play in order to manipulate liquidity ratios!